Whereas Schäuble – looking at the current Greek crisis and beyond – came up with a push for a European Monetary Fund (EMF) and alluded to deeper integration of the Eurozone, Merkel was eager to state that there is no need for such ideas, that Greece would not be in danger of getting starved by financial markets and that therefore this would not even be a topic for the forthcoming European Council. With Merkel, Germany is in denial of its European duties.
So who is right and who is wrong? And where is Germany heading with two very different statements coming from the same government? It’s not easy to answer this question. But even if Schäuble is right, Merkel still has German public opinion and power on her side.
It might well be that Martin Wolf had a point when he commented recently in the Financial Times that Schäuble’s plans for an EMF are no good. The central points of combining emergency aid for countries running excessive fiscal deficits with fierce penalties (even suspending voting rights of badly behaving members within the Eurogroup and allowing – or forcing – a member to exit the monetary union) are not nice ideas. Even assuming they could be implemented, which is doubtful, they would have an overwhelming deflationary impact. Beyond this, the statement that Eurozone status is no longer so irrevocable, coming from the country whose former Chancellor, Helmut Kohl, is known for the passionate sentence that the “Euro will make war in Europe impossible” sounds like a new demi-tone coming from Merkel – who is Kohl’s heir. Wolf is certainly also right when assessing that Greece is not (yet) the problem, but that the real threat is the public finances of big countries like France.
Hence, Schäuble probably could not go any further when he tested out the EMF-balloon, given the hostile German public opinion against any financial help for Greece. Nevertheless, at least he wanted to nurture a bold institutional policy initiative on the Euro and he is one among fewer and fewer members of the German political and economic establishment who at least dared to make two points: first, that Germany needed to act and to take the lead on the EMF; second, that it is time to make more decisive use of the institutional instruments available within the Eurozone – but also that these instruments should be improved and the body of regulations completed in order to be better prepared for potential future crises. Even if in the details his proposals aren’t the right ones, at least there is a lot of political commitment in Schäuble’s pledge for an EMF.
Indeed, Schäuble’s words had a taste of the old German conviction that the Eurozone is, above all, a political project: “European integration, monetary union and the euro are the only choice”. Therefore, all those wishing for a European Germany should hold to and support Schäuble. The real problem is that his views are no longer necessarily the mainstream or average view of the German establishment; at best, the German commitment to Europe today comes in another tone, which is arrogant and self-righteous and which conveys that Germany dictates the rules (of austerity) and those who cannot or do not want to follow them are free to leave the Eurozone.
This is precisely the Merkel language. No need to help, no danger for Greece, no need for Germany to act. And no need to put this on the EU’s Council agenda. This was her message. And in reaction to comments by French Finance Minister Christine Lagarde’s on the problem of the German export surplus creating heavy imbalances within the Eurozone, Merkel flatly stated that Germany won’t change its export orientation: “We will not renounce on our strength”. The new German wisdom is that Germany can, and if others can not, then tant pis pour eux….
This, however, overlooks the very fact that Germany has no real means to really sanction ‘underperforming’ countries and to bring them to the path of wisdom and austerity, enforcing fiscal rules. The German whip is rhetorically strong, but de facto inexistent. Germany may be the best pupil in Euroland, but there is little point of being left alone in the classroom. It is striking the degree to which it seems to be forgotten in the current German debate that Germany is the biggest beneficiary of the single market and the euro, as it prevents the other members from devaluing their currencies. Germany can only be an export champion, because of the euro. One important argument for Germany to go for the euro was that the German mark was overburdened by serving as the anchor-currency of the European Monetary System: it needed the other currencies to smooth out the effects of the mark’s permanent appreciation.
Today, the German lesson to be learned is probably that ‘The-winner-takes-it-all’ approach does not work in Europe. Germany may be stronger, more competitive and bigger than all European countries. But it cannot work against all of them together – or in the end it will stand alone amid a European disaster. European integration has long been the German way to sublimate hegemony over the continent: Germany fueled the European integration system, but got a lot out of it. If Germany now goes for lashing without nurturing, the political project of Europe is at risk.
To go back to Faust: put love above religion – the love for the European political project, rather than being a prisoner of the orthodoxy of the current, German-designed, euroframework – would probably be the better choice. That is why Schäuble should be supported in his idea of an EMF, even if the details need to be fine-tuned. Germany seems to lack the political energy today to move Europe a step further toward integration by promoting a better management of the Eurozone. Yet it may one day come to regret having been in denial about its core-interest: Europe.